Independent? From Whom?

The problem with receiving legal advice from staff attorneys

This article was originally published in the May-June 2005 issue of Board Leadership.

Not so Long Ago, the requirement that boards be independent bodies was widely ignored or misunderstood. Looking back, it is hard to imagine what the word independent was thought to mean. Almost certainly, most boards understood that their members should have no employment relationship or personal dealings with the organization on whose boards they served. But the word has been interpreted in some bizarre ways; I have actually encountered boards that thought they were supposed to be independent from owners!

Increasingly, boards now understand that they are required to be independent from management. This means that they must make their decisions and monitor management’s compliance with board decisions using a variety of input sources, including some that are not beholden to management.

Recent corporate scandals have demonstrated that the board cannot depend on receiving impartial input when it gets financial audit assurance and advice from companies that rely on management consulting contracts for a major part of their income. So the issue of independence in the seeking of financial advice is pretty much resolved.

But the issue of the board’s legal advice is as unresolved as it ever was. And of course, the same argument applies: independent legal advice is unavailable to the board when it is received from a legal adviser who is retained or employed at a management level. Naturally, this is not a comment on the individual professional ethics of the attorney involved, since even the most scrupulous attorney cannot avoid being in a conflict-of-interest or conflictof- loyalty situation when advising both board and management. The attorney representing another party with different interests does not supply independent legal advice. Divorcing couples know this well.

Currently, many public bodies, notably including school boards, receive their legal advice from staff attorneys. Will it take another scandalous situation to correct what should be so obvious?